Friday, October 25, 2013

When the Euro was about to be launched a colleague and I were in Germany on business. Over drinks with our German business partners they teased us about it. In all previous such conversations with them we had been primarily concerned about the impact of EU policy on the UK's interests. As a global trading nation, we argued, these often diverge from those of the more parochial economies of mainland Europe. To their surprise, on this occasion we were more worried about Germany for whom we predicted the Euro would be a disaster.

I told them of overhearing the then Finance Minister of a less wealthy EU country explaining to a group of Economics students how he proposed to 'pump up' their currency in advance of joining the Euro. Once in, he told them, the marriage to the Deutsche Mark would give his citizens high purchasing power and increase their ability to borrow. My colleague pointed out that, because of their history, Germans are averse to debt and afraid of inflation, while other Europeans are not. They - and their governments - rather like the idea of large debt paid back in bad coin.

They scoffed, but history proved them wrong. The Greek government, for example, had lied through its teeth in the run up to joining EMU and has been officially criticised for continuing to do so in the years following the adoption of the Euro. They statistically masked the effects of their orgy of spending and debt until there was nothing to do but prop them up if the currency was not to be jeopardised.

Our German business-friends were man enough to call my colleague last year and tell him that we had been right. I take no pleasure in that. History continues to vindicate commonsense over voodoo economics, without ever teaching the 'something for nothing' crowd to adjust their expectations to reality. I also feel no glee at the stirrings in the French Establishment about 'Frexit.' I would rather be rich than right. I would rather be free than either. This mess is going to hurt me in the end, however right I was.

Just look at the views of François Heisbourg, as reported in the linked Telegraph Blog. He is a Knight of the Legion of Honour and holder of the French Order of Merit. He is also Chairman of the International Institute for Strategic Studies and an insider Énarque par excellence. You will find little sign in his words of a new dawn of commonsense in the European élite.

The dream has given way to nightmare. We must face the reality that the EU itself is now threatened by the euro. The current efforts to save it are endangering the Union yet further

The retreat he proposes is merely tactical. He is still locked into the mad meme of 'ever closer union.' His only concern is that introducing the Euro too soon has threatened that objective.

In my view, the introduction of the Euro was a misjudged attempt to bounce Europe into political union. The federalists knew that a currency crisis would happen. If two middle-aged English lawyers could predict it over beer in Frankfurt, how could the great minds of the Énarques fail? I believe they anticipated the current crisis (or something like it) and believed it would force a concentration of political power, however little European citizens might want it.

It never made sense for nations with different economies, fiscal policies and approaches to state expenditure to be locked into a single currency without a single government. The crisis turned out to be a bug, but it was meant to be a feature. Even now most federalists, disappointed though they must be that Europeans' appetite for union has diminished in its wake, are still claiming all is well. Those, like Heisbourg, who say that;

God knows denial has been for a long time, by default, the operating mode of those in charge of EU institutions.

are simply concerned that the political miscalculation of premature currency union is now threatening the success of the whole project. None of them have learned a thing.

No less predictable, but far more chilling, are these words;

Money has to be at the service of the political structure, not the other way around

He says it to oppose those federalist politicians who, he claims, are trying to shape political structures to prop up the Euro. He is right to oppose that and might say, I suppose, that I am taking his words out of context. Still I think, in a Freudian way, they are incredibly revealing of the attitudes of our political elites.

Until our mad masters re-learn that money is a means of exchange at the service of the whole society there is no hope for our economic security. The users of a currency are the ones who matter, not the politicians administering it. We 'own' our money and the underlying value it represents, not them. The only true economic role of 'the political structure' is to ensure its soundness so that we can continue to trust it. That they now complain we don't trust them is very largely a product of their failure to perform that basic task. They have behaved like racketeers and cannot complain when that's how they are seen.

Political elites have got away so long with debasing money to serve their own ends that it now seems they have come at last to believe that this is its true purpose.

Thursday, October 24, 2013

I am happy to be the source of Samizdata's quote of the day, but my own choice today is from this 1970s lecture by Milton Friedman at the University of Utah;

We had robber barons then and we have robber barons today. But there’s a big difference between the robber barons then and the robber barons today. The robber barons then primarily could get their money only if people freely gave it to them. They got their money by selling a service. And nobody had to buy it. And if people bought it it was because it was a better service than it was before. The robber barons today are in a large part able to get their money by sending a policeman to take it out of your pocket.

I commend Professor Friedman's speech to you. Even someone as opposed to current economic ideology as I am, still falls from time to time for some of its pervasive - and destructive - foundation myths.

I even briefly managed to do it in the face of Alan Milburn's certifiable analysis of the woes of our poor. He thinks we need higher minimum wages to price more low-skilled people out of work and perhaps even make offshoring fashionable again. No trace of sanity there but still I managed to keep smiling.

Sadly, however I made the mistake of reading the comments on the linked article at the BBC website. The drivel there is enough to make the brightest optimist despair.

Try this for size;

The real reason why poverty is increasing is that we have had government after government making public sector cuts. This has led to more expensive services and unemployment which forces wages down. And all this has been done in the name of tax cuts for the rich.

or this

Rent and utility bills are killing everybody including business, they must be capped and energy re-nationalized. I don't care if people think it's socialism because at what point do you say capitalism with no rules or morals has to stop and isn't working?

or this

So much for our government's claim that work is what stops poverty and benefits is (sic) what keeps people in it

or even this

I couldn't care less how well the banking sector is doing or what the GDP is or the UK's position in wealth tables is so long as I can turn the lights and heating on and eat decent food without worrying about the cost. [my emphasis] MAJOR wealth distribution needed

Yes, of course. That will all work in Britain. After all remember how well it worked in China, the USSR, Eastern Europe, Cuba and - oh wait - here.

Was ever any man as wrong as Francis Fukuyama? Despite the comprehensive proof of its failure when tested disastrously on more than half of mankind in the 20th Century, it seems the cancerous doctrine of socialism will never die in Britain until the government's cheques actually start to bounce. Not while the state's employees, corruptees and other dependents retain the vote. This despite their conflict of interest, not just with taxpayers, but with the fabric of reality itself.

Tuesday, August 27, 2013

Since the 17th/18th century capitalist seizure of government power, and specifically following from the 1694 creation of the Bank of England, the government's debt has been the basis of our monetary system. This combination of government power and capitalist credit money made possible a broader based integration between government and the economy - contributing directly to the explosion of British economic, industrial and military power which later gave birth to the British Empire.

This system has obvious advantages with respect to the coordination of a mass economy but from the perspective of individual freedom it is deleterious.

Some argue that the private creation of government money is a separation of powers which itself limits government. In reality, the opposite is true. Finance is government and government is finance - and at the same time, if we wish to do business, we cannot help but be drawn into this government-private hybrid money nexus. The power of government is surreptitiously (or not so surreptitiously) extended to every aspect of economic life.

Not only is it nearly impossible to escape this system but also, if the government relies upon and controls the private money system, we face the twin dangers that (1) control of government/finance becomes the most profitable activity in society and (2) the temptation to raise revenue for government takes precedence over real economic considerations.

The Fred Goodwins of the world, or the trend for physicists to become bankers are a result of (1) while the austerity/ higher tax campaigns are a result of number (2).

Libertarians would generally seek to solve these problems by eliminating the government from money creation. There are a number of problems with this approach. Firstly, credit networks without government support tend to be either small and personal, or entirely unstable. Secondly, there is no evidence that pure "commodity money" has ever existed or that barter can be used to run a large scale economy. Thirdly, almost everyone agrees that there must be some role for government and if government must use private money we again run into problems (2) + (1) - because government relies upon private money it cannot be separated from private business.

Now, there may well be a trade off between the ability to run a mass economy and individual liberty, in order to be free we might have to accept fewer things. I'm relatively comfortable with that - from the perspective of libertarians the destruction of the mass economy may well be a feature rather than a bug. However, I do feel that, rather than eliminating government money creation, as libertarians suggest, (or eliminating private money creation as per the positive money proposal) - we should allow both systems to operate alongside each other, but to exist, entirely and conspicuously separately - in essence, make using government money and engaging in the mass economy a choice.

Government created money could be a form of virtual commodity, (with the function of gaining respite from the taxman - essentially a tax credit). If the government did not require private money, there would be no (revenue related) reasons for it to tax these transactions. Therefore, it would be relatively easy to eliminate VAT, income tax, capital gains tax and replace it with some form of flat tax on tax credits only. In this way, the ability to do business would be separated from the need to pay tax.

Personally, I would set up the system in such a way that it would be possible to choose through lifestyle to avoid tax entirely. (For example - we distribute 100 tax credits to each citizen every year and tax on the basis of natural resource consumption- 100 tax credits for every 10 squared meters of land - by making a lifestyle choice to consume fewer natural resources you could avoid taxation and then be free to engage in whatever other business you choose - obviously many people would insist that people did "work first" before they get credits.)

You could then choose to conduct business either using surplus tax credits (which would offer the mass stability of government money), private credit agreements or barter/commodity money. These entirely independent monetary systems would provide a *real* division of economic power and be based entirely upon voluntary exchange.

As I say, I don't know if this would be more efficient from the perspective of production or "raise GDP", but I do think it would be more conducive to personal liberty.

Tuesday, August 06, 2013

The linked article is typical of two things. Firstly why I had to smile when, on my recent tour of their country, American Conservatives told me their country was turning "socialist." And secondly why that's unlikely ever to happen.

As I understand it, the equivalent shortfall in the UK is near-total. There are no pension funds for most state employees (though the teachers do have one - massively underfunded, of course). No money has been invested to provide for the future pensions of most state employees, any more than it has for future state pensions for the rest of us. It's a pure Ponzi scheme. As Nye Bevan said in a rare burst of humour and honesty;

The great secret about the National Insurance fund is that there ain't no fund

Yes, America's pubic authorities have under-funded their employees' pensions, but ours have not funded them at all. They have simply expected from the outset to take the necessary money by force from future taxpayers. After all, what honest return in investment could possibly compete with the infinite return on money taken by violence at merely administrative cost? Our rulers have disregarded the Jeffersonian wisdom that has restrained American public spending for most of its history;

I place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared.

Hence the last Labour government's panic-stricken importation of millions of immigrants to make up for the declining birth-rate of the underpaid and over-taxed locals who have economised in the face of rising overt taxation and the relentless covert taxation of inflation by cutting back on the size of their familes. Hence also, perhaps, the oddly perverse incentives to breed - regardless of ability to pay for the resulting childrens' upbringing. A Ponzi scheme backed by violent force can last longer than a private sector version, of course, but it can still be brought down prematurely by demographics.

So why does the story suggest it's unlikely that socialism will ever arrive in the US of A? Because of the writer's delightfully thoughtless assumption that future obligations should be funded. Of course there are economic idiots everywhere (and dishonest self-serving rascals too) but there are fewer people in the US prepared to dispute Adam Smith's truism that;

What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom

America's free speech is constitutionally entrenched - as witness the delightful puzzlement of American tech companies such as Google and Twitter when European authoritarians demand they censor their services. The media (particularly local media) routinely use their freedom to challenge particular line items of public spending, even if lax in holding politicians to account for the overall ballooning of the American state and its various extortions.

Again, their failings pall into insignificance compared to ours. Here, a multi-billion pound hole in the Ministry of Defence's budget didn't even pass the Alistair Campbell "crisis management" test of remaining in the headlines for more than ten days. The public sector incompetents who lost billions down the backs of their ministry's sofas faced - as far as we know - no consequences at all. This, though whole cities of taxpayers will have to work for years to meet the shortfall.

I am optimistic enough to believe that America's good sense will one day benefit us too. The statist tide is turning there, as was clear from my conversations with many people on my tour. In recent press reports I have even read the words "libertarian populism" - a phrase as unexpected and delightful to me as was "the fall of communism" two decades ago. If the state can be scaled down in the United States and the resulting economic benefits compared and contrasted with the moribundity elsewhere, that will arm lovers of freedom everywhere.

Thursday, March 07, 2013

I have missed "Wat Tyler's" old blog, which has been silent for two years. It was the one to which I always referred sceptics about blogging. "Wat's" alter ego was the perfect person to counteract the stereotype of bloggers as opinionated idiots writing from their mothers' basements. Mike Denham is a professional economist who has worked both at the Treasury and in the private sector. He is erudite and thorough in his research and considered in his conclusions.

The good news is that the Burning our Money blog is back. The better news is that Mike has written a book with the same title. True to his diligent nature he has not just recycled his six years of blogging but has researched and written it from scratch.

I met Mike once before at a bloggers' party where we were the only two present of any reasonable vintage. I was happy to see him again this evening at the launch party for his book. Here he is (click to enlarge), holding up the copy he kindly signed for me. I can't wait to get stuck into it and, knowing his writing so well, I confidently commend it to you. I also recommend you subscribe to the revived blog. On past form, it will be a good source of hard data with which to smite the dishonest rascals in power.

Tuesday, February 19, 2013

After less than two years back in Britain I am bored of the first world problems of this plump and pampered land. I am particularly tired, for example, of the overused word "privilege". To me, the great enemy of mankind is not privilege but poverty. Those of us who are not poor represent a problem solved. The question is how to increase the wealth of those who still are. As a purely economic issue, that's a question long since answered.

History shows us that free markets cure poverty fastest. History also shows us that socialism increases poverty. Ask the millions of people in the former Soviet Bloc. It is a stupid, nasty, hateful doctrine; the moral equivalent of deliberately infecting the healthy with disease in order to reduce health inequality.

Socialism's obsession with material goods ignores the fact that the ability to accumulate wealth, important though it is as an engine of economic development, is not that big a deal at a personal level. Faced with my late wife's cancer, our life's savings could ultimately only buy her more comfortable surroundings in which to die. Material rewards for a life of hard work are all very well, but any sane person knows that true happiness comes from things that have little or nothing to do with money; health, culture, education. recreation and family.

There's a wonderful passage in one of Billy Connolly's shows where he talks of a man at a dinner party who, asked what he did, said "I am a tobogganist". Connolly has much fun imagining what his Glaswegian working class father would have said if he had told him that's what he wanted to be. I have recently been reading about the famous photographers Henri Cartier-Bresson and Robert Frank. Both came from rich families. Both walked away confidently from their material comforts (although Frank occasionally took money from his parents to help him along) in order to embark on artistic careers. Their equivalent, if you like, of tobogganing.

The confidence, perhaps even arrogance, of such people about the importance of their life choices derives from the fact that, unlike Billy Connolly (and most working-class children) they have no practical-minded parents telling them, with their best interests at heart, to "get a real job" The confidence, or indulgence, of their parents is helped by money, of course. If you can't support your child for ever, you are understandably more anxious to see him support himself. But their "privilege" was more complicated than that. Their parents did not laugh at them when they aspired to be "tobogganists". Rather, they expected of them, if that's what they were going to do, that they should head for the highest Alp. That expectation is the true nature of privilege.

Yes, it's easier with money but it's also possible without. Chinese children do not do best in Britain's schools because Chinese parents are, on average, richer. They do better because their parents, on average, value education more highly and expect more effort. A "tiger mother" may not feel like a privilege when you are under her care and control, but she is worth more than all the money in the world. Any parent, rich or poor, educated or not, can be a good parent - with better effect on their child's ultimate happiness (and, incidentally, the nation's prosperity) than any redistribution of wealth.

I remember two long-lost school friends in my scruffy home town up North. Their father was a dustman devoid of all aspiration. Their mother, however, had a dream. Both arrived at infants school able to read because she had pushed them around town in their prams teaching them to do so from the road signs. Unashamedly eccentric herself, she empowered them to be different from their contemporaries and not to give a damn about the relentless peer pressure to be stupid at our bog-standard comprehensive school.

She wasn't Chinese. She was from the white working class; now the second-worst performing ethnic group in Britain's schools. She did nothing any parent, grand-parent or aunt - rich or poor - could not do. I wish all the whingeing envy-ridden half-wits banging on about "privilege" would shut up and be like that scruffy, oddball, utterly splendid mother. She refused to be defined by her circumstances. So - if we have any dignity - should we all.

If you have economically under-privileged kids, if you teach them, are related to them or even just have them as neighbours don't tell them they are doomed. Don't encourage them to hatred and envy. Encourage them to dream of "tobogganing" and lend them the occasional book. Let them see you reading for pleasure (pretend if you have to) so they think of it as normal. Then they will be privileged kids too.